JH Kelly, LLC v. AECOM Tech. Servs.
| Decision Date | 21 January 2022 |
| Docket Number | 20-cv-05381-HSG |
| Parties | JH KELLY, LLC, Plaintiff, v. AECOM TECHNICAL SERVICES, INC.., et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Before the Court is Defendant and Counter-Claimant AECOM Technical Services, Inc.'s (“AECOM”) motion to dismiss certain claims in JH Kelly LLC's (“JH Kelly”) Second Amended Complaint. Dkt. No. 98 (“Mot.”). The motion is fully briefed. See Dkt. Nos. 105 (“Opp.”) and 110 (“Reply”). The Court finds this matter appropriate for disposition without oral argument and the matter is deemed submitted. See Civil L.R 7-1(b). For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.
This construction dispute arises out of the Burney K2 Replacement Project (“Project”), which involved the replacement of a natural gas compressor unit and various upgrades at the compressor station near Burnley, California. Dkt. No. 102 (JH Kelly's Second Amended Complaint or “SAC”) ¶ 1. The Burney Compressor Station is part of Pacific Gas & Electric Company's (“PG&E”) natural gas distribution system. Id. ¶ 11. That system supplies natural gas to the surrounding area and allows compressed gas to travel through pipelines from Oregon to consumers in California. Id. In all, PG&E's natural gas distribution system provides service to around 4.2 million customers from Bakersfield, California to the Oregon border. Id.
On February 11, 2016, AECOM entered into an agreement (the “EPC Agreement”) with PG&E for the Project. Id. ¶ 19. Under the EPC Agreement, AECOM agreed to act as the designbuilder and prime contractor for the Project. Id. On October 21, 2016, AECOM and Kelly entered into an agreement (the “Subcontract”) for the construction portion of the work. Id. ¶¶ 2527.
Various issues on the Project led to disputes between JH Kelly, AECOM and PG&E, and JH Kelly filed the First Amended Complaint on January 29, 2021. Dkt. No. 18. PG&E moved to dismiss JH Kelly's First Amended Complaint and prevailed as to JH Kelly's first claim for foreclosure of mechanic's lien. Dkt Nos. 24, 56. On March 8, 2021, AECOM filed its First Amended Counterclaim against PG&E and JH Kelly. Dkt. No. 38. PG&E moved to dismiss AECOM's First Amended Counterclaim, including AECOM's quantum meruit claim based on an abandonment theory. Dkt. No. 48. On June 28, 2021, the Court granted PG&E's Motion to Dismiss as to AECOM's quantum meruit claim based on an abandonment theory but gave AECOM leave to amend its claim. See Dkt. No. 64. AECOM then filed its Second Amended Counterclaim on July 19, 2021. Dkt. No. 65. AECOM and PG&E reached a settlement on October 18, 2021 and ultimately agreed to dismiss their claims against one another with prejudice. See Dkt. Nos. 93, 127.
In light of the Court's order dismissing AECOM's original quantum meruit claim based on an abandonment theory, JH Kelly sought and was granted leave to also amend its First Amended Complaint, which also stated a quantum meruit abandonment claim. See Dkt. Nos. 82, 100. JH Kelly then filed the operative SAC, which is the subject of AECOM's present motion to dismiss. Dkt. No. 102.
Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A defendant may move to dismiss a complaint for failing to state a claim upon which relief can be granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.”
Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In reviewing the plausibility of a complaint, courts “accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)).
If the court concludes that a 12(b)(6) motion should be granted, the “court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted).
JH Kelly's SAC alleges eight causes of action against AECOM. Dkt. No. 102. AECOM moves to dismiss the SAC's (1) Fifth Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing; (2) Sixth Claim for Quantum Meruit/Abandonment of Contract; and (3) Eighth Claim for Quantum Meruit/Reasonable Value. See Mot. at 6.
As an initial matter, JH Kelly contends that the Court should deny AECOM's motion to dismiss its claim for breach of the implied covenant of good faith and fair dealing as untimely. Opp. at 19-20. JH Kelly argues that AECOM raised its motion after the dispositive motion deadline even though the claim is “materially unchanged” from previous versions of JH Kelly's complaint. Id. The Court agrees that AECOM waived its right to bring a 12(b)(6) challenge to JH Kelly's claims for implied covenant of good faith and fair dealing and quantum meruit for reasonable value because AECOM previously answered JH Kelly's First Amended Complaint, which contained identical claims. See Dkt. Nos. 18 ¶¶ 73-76, 88-90; 23; see also Fed.R.Civ.P. 12(b)(6); Elvig v. Calvin Presbyterian Church, 375 F.3d 951, 954 (9th Cir. 2004) () (emphases added).
Perhaps recognizing this waiver, AECOM asks the Court to consider its Motion as a motion for judgment on the pleadings.[1] Mot. at 15. Such a motion may be brought after the pleadings are closed but only if it is “early enough not to delay trial[.]” Fed.R.Civ.P. 12(c). Because AECOM's motion may narrow the issues for trial, and because it can be addressed without delaying trial, the Court construes it as a motion for judgment on the pleadings and finds good cause to address its merits.
AECOM first moves to dismiss JH Kelly's claim for breach of the covenant of good faith and fair dealing on the ground that it is duplicative of the breach of contract claim. See Mot. at 1314. The Court agrees that JH Kelly's implied covenant claim, at least as currently pled, is superfluous.
Every contract contains an implied-in-law covenant that imposes on each party a “duty of good faith and fair dealing” in the performance and enforcement of the contract. Foley v. Interactive Data Corp., 47 Cal.3d 654, 683, 765 P.2d 373, 389 (1988). The California Supreme Court has held that “where breach of an actual term [of the contract] is alleged, a separate implied covenant claim, based on the same breach, is superfluous.” Guz v. Bechtel Nat. Inc., 24 Cal.4th 317, 327, 8 P.3d 1089, 1095 (2000). At the same time, however, the Supreme Court explained that an implied covenant claim may not allege a breach of obligations beyond the contract's express terms. Id.
At least one California state court has read the California Supreme Court's decision in Guz to preclude any possibility of considering breach of contract and implied covenant of good dealing claims as separate and distinct. See Smith v. Int'l Bhd. of Elec. Workers, 109 Cal.App.4th 1637, 1645 n. 3, 1 Cal.Rptr.3d 374, 378 (2003).
But several federal district courts have read Guz to allow simultaneous breach of contract and implied covenant claims when the plaintiff alleges that the defendant exercised a right under the contract in bad faith to frustrate the contract's benefits. See, e.g., Daly v. United Healthcare Ins. Co., No. 10-CV-03032-LHK, 2010 WL 4510911, at *5 (N.D. Cal. Nov. 1, 2010); Celador Intern. Ltd. v. Walt Disney Co., 347 F.Supp.2d 846, 853 (C.D. Cal. 2004); Lamke v. Sunstate Equip. Co., LLC, 387 F.Supp.2d 1044, 1048 (N.D. Cal. 2004); see also Guz, 24 Cal.4th at 318 n.18 ( ) (alterations omitted).
AECOM argues that JH Kelly's claim for breach of the implied covenant should be disregarded as superfluous because it “relies on the same alleged facts and seeks the same damages claimed in a contract claim.” Mot. at 14. The Court is not entirely convinced by AECOM's argument. As the Celador court noted, courts analyzing whether a claim for breach of the implied covenant is duplicative of a breach of contract claim “should not mechanically inquire whether the same facts are alleged and whether the same remedy is sought” because only a limited set of circumstances can give rise to a...
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